Duties applied to “shadow directors” of the UK companies

The UK Small Business, Enterprise and Employment Act 2015 has adjusted the status of the so-called shadow directors.

The term “shadow director” is established by statute. According to section 251 of the Companies Act 2006 (as amended 2015) “shadow director”, in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act. A person is not to be regarded as a shadow director by reason only that the directors act on advice given by him in a professional capacity; or in the exercise of a function conferred by or under an enactment; or in that person’s capacity as a Minister of the Crown.

As provided by the revised version of section 170(5) of the Companies Act, “the general duties apply to a shadow director of a company where and to the extent that they are capable of so applying.”

“General duties” of directors are envisaged by sections 171-177 of the Companies Act and include duty to act in accordance with the company’s constitution, to promote the success of the company, to exercise reasonable care, skill and diligence, to avoid conflicts of interest, to declare interest in proposed transaction or arrangement and others. The Secretary of State may by regulations make provision about the application of the general duties of directors to shadow directors (including its scope and exceptions).

This means that the shadow directors may become fully accountable for their actions in respect of the company on equal terms with the appointed directors. Particularly this applies to cases where it is proved that the shadow director gave the company directors instructions for wrongdoing.

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